Lifestyle Inflation: The Spending Trend

“A luxury once enjoyed becomes a necessity.” – C. Northcote Parkinson

As we grow older, what we want becomes more sophisticated and we need bigger budgets to keep up. It would never occur to us to take a weekend trip or go anywhere really, without our smartphone, e-reader, tablet, fitbit, or external battery.

What is lifestyle inflation? It is the natural tendency of people to desire improvements. As one blog defined it:

“Lifestyle inflation is the unnecessary expansion of spending to match an increasing income.”

Consumer spending is fueled by technological advances, creativity and endless options for new services, information and products. Improvements are readily available, and products are made to last only a few years (which is called planned obsolescence). As our lives progress and we earn more, we want improved quality. Status may also be a factor. Even though there are products available that serve the same purpose as the more expensive brands, we convince ourselves that we “get what we pay for” in regards to quality, features, or what we think the product will do for us.

Farther down the road, as our earnings increase, we might begin to purchase items that would have been previously out of reach and unaffordable. As theorist C. Northcote Parkinson put it:

” Expenses rise to equal income.”

As we transition in life, from graduating college, to a young professional, to a seasoned careerist, we see our costs increasing along the way. This is what is called “lifestyle inflation”. Lifestyle inflation takes us from buying items that accomplished their objectives perfectly, to buying the next best and greatest one. Even when what we have doesn’t need to be replaced.

It is true that things change and technology renders some items obsolete (such as streaming replaced Blu-Ray that replaced the DVD that replaced VHS , which was a luxury to begin with). However, lifestyle inflation exceeds the basic inflation rates calculated by Uncle Sam (or miscalculated). It escalates and multiplies the inflation we are already experiencing.

The Unseen Costs of Lifestyle Inflation

An old Russian proverb says:

“Spending is quick; earning is slow.”

Spending comes much more easily than earning, saving or investing. But the true cost of lifestyle inflation runs deeper than the immediate effect on the bottom line.

One cost is that of the emotional along with financial stress. In our culture of consumerism, it’s very common to experience the feeling of being trapped. Our incomes might increase, but so do our expenditures. We take on a bigger mortgage, a higher car payment, send the kids to private school and boom— we’re trapped on that hamster wheel of debt.

Financial prosperity has the advantage of giving us choices. Options. Freedom. But if we alter our lifestyles to dispose of the extra income burning a hole in our pockets, we will never experience true financial freedom. And though we imagine that “the rich” can spend what they want, in actuality, the wealthiest among us are those who live below their means, and live a thrifty lifestyle. As S.S. Huebner said:

“Thrift may be defined as sacrifice over a period of time, int the interest of some definite future purpose, with respect to our current expenditures.”

Debt is another debilitating result of lifestyle inflation. Even without consumer debt, lifestyle inflation can significantly hinder any wealth-building efforts.

Consider George Carlin’s rant on consumerism:

“The only true lasting American value that’s left – buying things! People spending money they don’t have on things they don’t need – so they can max out their credit cards and spend the rest of their lives paying 18% interest on something that cost $12.50!”

What about opportunity costs? One of the 7 Principles of Prosperity is to measure opportunity costs. Lifestyle inflation is so much more than the difference between a Volkswagen and a Lexus. It equals that difference plus the extra money that difference could have earned over the years.

Five Steps To Conquering Lifestyle Inflation

Lead Yourself Not Into Temptation. There is a good reason the IRS collects taxes before you even receive your paycheck: so you don’t spend it first! Similarly, you can reinforce your personal saving through automatic withdrawals, mortgage payments and high cash value accounts. Know your own spending habits, make a spending plan, and practice conscious consumption.

Save Your Raises. If your income increases, consider how to save the difference instead of spend the difference. Not only is this a smart financial move, it increases your options and will lower your stress should your income decrease due to circumstances or choice. You can still splurge occasionally – you just don’t automatically ratchet up your spending to match your income.

Needs vs. Wants: Get Real About Your Priorities and Values. Define what it is you want money to DO for you. What matters most to you? Try to align your spending with your values. You can drive a nice car or go on a vacation to remember, but be smart about it. Stream movies at home so you can save up for those tickets to the big game. Perhaps you could buy a new or gently used car every five years instead of every three years. Get creative so you can afford the splurges you enjoy without compromising your ability to build cash-flowing assets.

Treat Your Dollars Like Seeds– Not Fruit. Fruit gets eaten and disappears, but you save the seeds for planting. It is said that Warren Buffett wouldn’t give a friend a quarter if he only needed a dime for the pay phone, he would make change and keep the extra 15 cents. For him, the joy of money was never in the spending of it, but in making it multiply. Given enough time and the right strategy, even a mere dollar can grow into a million. I believe it is essential to have a saving STRUCTURE in place for saving. Just as mortgages do wonders in helping otherwise renters in building equity in a home, a cash value account in a life insurance policy with a PUA (Paid-Up Additions) rider can help you build long-term savings. (And unlike the mortgage, you can access your equity when needed – without a qualifying process). Do you want to see this type of flexible, guaranteed savings vehicle? Just ask.

Practice Gratitude and Contentment. Finally, know that prosperity begins with our thinking, our state of mind. Don’t let advertising and online shopping sites keep you in a constant state of comparing yourself to the Joneses. Love what you have and consider that the Joneses may be secretly envious of your life’s simplicity and your lack of consumer debt.